Guide from
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              Common VAT problems
              Once you understand the basics, VAT is reasonably straightforward. But there are some 
              areas where it is easy to make mistakes. These can lead to stringent penalties, and 
              ignorance is no defence.
              It makes sense to be aware of some of the more common pitfalls, and to know where to 
              get help and advice.
              1. Getting the timing right
              Timing is crucial. Generally every transaction must be shown in your VAT return if the ‘tax 
              point' (the point at which VAT is accountable) falls within that particular VAT return period, 
              whether or not payment has been received.
              The tax point is usually the date goods were supplied or services completed
              This is known as the basic tax point. There are some variations:
                      If a VAT invoice is issued or payment is made before the basic tax point, the date of 
                       invoicing or payment becomes the tax point, whichever is the earlier.
                      If you issue a VAT invoice up to 14 days after the basic tax point, the date the 
                       invoice was issued becomes the tax point. It is possible to agree an extension to the
                       ‘14-day rule' by making an application to HM Revenue & Customs (HMRC).
                      If you receive a VAT invoice up to 14 days after the basic tax point, you can assume
                       the invoice date is the tax point, unless the invoice shows a separate tax point date.
                      With continuous supplies, the tax point occurs when a VAT invoice is issued or 
                       payment is made - whichever is earlier.
              As a buyer, you cannot reclaim the input VAT you paid without a valid VAT invoice
                      If you pay your supplier in advance, you cannot reclaim the VAT element of the 
                       payment without a valid VAT invoice.
              ACCA LEGAL NOTICE
              This is a basic guide prepared by ACCA UK's Technical Advisory Service for members and their clients. It 
              should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be 
              obtained, where necessary.
                      If you reclaim input VAT on a supplier's invoice, but fail to pay the supplier within six 
                       months you normally have to repay the VAT.
              Relief is available for bad debts
                      The invoice must be more than six months overdue and be written off in a specific 
                       VAT bad debt account.
                      You don’t need to tell the customer that a bad debt relief claim is being made.
              In practice, many small businesses use the cash accounting scheme
                      VAT returns are based on payments made and money received during the period, 
                       regardless of where the tax points fall.
                      Businesses with an estimated VAT taxable turnover of up to £1.35 million can apply 
                       for the cash accounting scheme.
              The flat-rate scheme for small firms simplifies calculating the net VAT you owe
                      Net VAT owed is calculated by applying a flat-rate percentage to their turnover.
                      The flat-rate percentage depends on your trading sector, so if your net VAT 
                       payments are generally a low percentage of turnover this scheme may not be of 
                       benefit.
                      Tax invoices must still be issued, but will not be used to calculate the VAT payable.
                      To join the scheme, estimated VATable turnover (excluding VAT) must be no more 
                       than £150,000.
              With the annual accounting scheme only one VAT return is submitted each year
                      Nine monthly interim VAT payments are made based on an estimate of the total 
                       annual VAT bill. A balancing payment is made when the annual confirmation is 
                       submitted.
                      Any business under the threshold of £1.35 million can apply to use the scheme from
                       the date of VAT registration.
                      The leaving threshold is £1.6 million.
              All VAT returns and VAT payments must be made online
              Post and packaging
              Charges are usually taxed at the same rate as the product
                  This applies provided the contract is for ‘delivered goods', even if you show a separate 
                   charge on your price list or invoice.
                  If UK delivery is offered as an optional extra, VAT will be due on the charge.
                  If the goods are for export, or leave from outside the UK, you should take advice.
              Packaging is normally taxed at the same rate as the contents
                  If you make a separate charge for packaging, this will always attract VAT.
              ACCA LEGAL NOTICE
              This is a basic guide prepared by ACCA UK's Technical Advisory Service for members and their clients. It 
              should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be 
              obtained, where necessary.
              The treatment of bundled supplies varies
                  It depends on whether there is a mixed or composite supply.
                  Mixed supplies may contain components liable to different VAT rates. You work out the 
                   total VAT liability in proportion to the value of each component.
                  Composite supplies have one VAT liability based on the main component.
              2. Getting the paperwork right
              Proper VAT invoices must be issued for supplies to VAT-registered businesses
              A full VAT invoice should include:
                      a unique identifying number
                      the supplier's name, address and VAT number
                      the customer's name and address
                      the invoice date
                      the tax point (if this is different from the invoice date)
                      the type of supply (such as sale or rent)
                      a description of and the amount of goods or services supplied
                      unit price
                      any cash discount rate
                      the VAT rate
                      the total excluding VAT
                      the VAT amount and the total payable
              VAT invoice numbers must be sequential, with no unexplained gaps
                      Duplicate invoices must be clearly marked.
                      If you issue other documents (eg pro-forma invoices), which show the same details,
                       they must clearly state ‘Not a VAT invoice'.
              For retail sales under £250 (including VAT), you can issue a ‘less detailed' VAT invoice
              This must show:
                      your name, address and VAT number
                      the date of supply
                      a description of the supplies
                      the amount (including VAT)
                      the VAT rate charged
              To reclaim the input VAT paid to suppliers, VAT invoices must be retained
                      If you lose a VAT invoice, you must get a duplicate invoice from your supplier.
                      If an invoice shows product codes rather than descriptions, you must also keep a 
                       copy of the supplier's product list.
              If you settle an invoice on behalf of a third party, you cannot reclaim the VAT charge
                      Input VAT can only be reclaimed by the recipient of the supply.
              ACCA LEGAL NOTICE
              This is a basic guide prepared by ACCA UK's Technical Advisory Service for members and their clients. It 
              should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be 
              obtained, where necessary.
                      Consider settling the net value only. It may be worthwhile for the third party to pay 
                       the VAT portion of the invoice and then reclaim it themselves.
              Watch out for arithmetical errors
                      If you are given an invoice which does not show VAT as a separate item, confirm 
                       the items are VATable and check what you can reclaim by multiplying the amount on
                       the invoice by 1/6, not by 20%.
              You must submit VAT returns and pay any VAT due on time
                      Failing to submit or pay on time carries a fixed surcharge of up to 15%, depending 
                       on how many times you 'default' in a 12-month period.
                      Additional penalties can be up to 100% of the VAT due, depending on whether you 
                       were careless or made a deliberate error, and whether you tried to conceal it.
                      If you discover you have made a mistake, you must correct it. Errors of up to 
                       £10,000 or 1% of turnover (whichever is higher) up to a maximum of £50,000 can 
                       be adjusted on your current VAT return.
              You will probably face tax enquiries from time to time
                      These can vary from routine tax inspections to more serious tax investigations if 
                       HMRC suspects that not all is as it should be.
                      You can reduce the likelihood and frequency of tax enquiries by dealing with VAT 
                       efficiently. Well-organised records will make the inspection process run more 
                       smoothly.
              If you sell your business, the buyer can apply to retain your VAT registration number
                      However, this would make the buyer liable for any past tax overdue, so they may 
                       prefer to set up a new VAT registration.
                      Unless the buyer is retaining your VAT number, you must retain your VAT records. 
                       In this case, the buyer must be given full information so they can comply with their 
                       VAT duties.
              3. Discounts and part exchange
              Discounts can be problematic
                      The VAT payable on a supply depends on how the discount is offered.
                      If an unconditional discount (such as a trade discount) is given, the VAT is based on
                       the discounted value of the full sale.
                      The same applies for prompt payment discounts - even if the customer does not 
                       pay promptly.
              VAT is calculated on the full value of any part-exchange or barter transactions
                      VAT must be calculated as if the transaction had been entirely for cash (ie 
                       purchases and sales at the full price). VAT invoices must be issued accordingly.
              ACCA LEGAL NOTICE
              This is a basic guide prepared by ACCA UK's Technical Advisory Service for members and their clients. It 
              should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be 
              obtained, where necessary.